Economics is fundamentally unscientific. The economic crisis has speeded the shift of power to emergent economies. In Britain and the USA the theory of 'rational markets' removed controls from the finance sector, and things can still get yet worse. Read my book, No Confidence: The Brexit Vote and Economics - http://amzn.eu/ayGznkp

Search This Blog

Saturday, 25 August 2012

The Greek Prime Minister is running around Europe, ostensibly to seek an extension of the timescale against which, he asserts, the Greek state will be able to achieve the cost and debt reductions that were promised in return for a loan that has already been received from the euro area and the IMF. He knows, as everyone he talks to knows, that his mission is impossible. Greece has neither the will nor the means to meet the requirements; and it is most improbable that politicians from the relatively-strong 'northern' eurozone member countries will dare to agree to lend Greece any more money to burn, because of the opposition of their own electorates. The exit of Greece from the eurozone is inevitable; and it will happen as soon as the zone has been able to agree on terms that will keep Spain, Portugal, Italy and Ireland within the system.

For more than two decades the Greek people were the over-indulged victims of a gigantic con, pulled on them by their politicians and bureaucrats, and by their Economists, acting in close concert with the eurorats who assembled the eurozone on the basis of an untrue prospectus and egregiously fudged data from various member states; among whom Greece was conspiculously mendacious [and, almost certainly, self-deluding]. The political future for Greece is deeply uncertain as living standards for wasters and for savers alike plummet into dire poverty. The one massively viable business sector - tourim - depends on the visitors feeling safe: if there are street riots, muggings on a vast scale, embezzlement of tourist companies' cash floats, and closure of hotels while the visitors are still in them, that will cause hundreds of thousands of tourists to opt for 'anywhere but Greece' for their annual over-exposure to solar energy.Greece faces anarchy - a Greek word - as the time for the resolution of the debt problem extends until an exhausted cohort of creditors agrees to a settlement of the debt at a monumental write-down; with everyone aware that the notional ultimate repayment will never happen.

The British peoples have similarly been deluded to the Greeks; and the present coalition government - like the Greek coalition - is trying desperately hard to achieve some sort of result that will vindicate its assertions that the austerity policy is 'succeeding'. But just as the Greeks are spending what they have most recently borrowed, within an economy that has declined significantly but which has not significantly been reconfigured; the British state is borrowing more than was projected and is doing massively less to stimulate growth that anyone believes necessary. The economy has shrunk for three successive three-month periods, with no sign that this trend will cease. The pound remains strong against the euro and the dollar simply because it is an alternative to those currencies as a short-term 'safe haven' for international investors, and among the assets denomiated in pounds that can still easily be sold are British government bonds. This is a precarious temporary solution to the conundrum of how to fund the excess of state spending [especially on benefits for the unproductive members of society]. George Osborne entered the government as the lead missioner for the doctrine of austerity, with full support from his colleagues: now he looks increasingly isolated. His former close ally, David Cameron, is less able to support Osborne as his own credibility has evaporated. Outside the national government, the Conservative Mayor of London has featured largely in the euphoric promotion of the Olympic Games by all the media; to an extent that begins to make him credible figure as a challenger for the Conservative Party leadership.The strong element of buffoonery in his persona is held to be an asset by many of the public, and probably makes him an ideal candidate to soften the members' pain as his party shrinks rapidly from the national political scene.

Greece has run out of plausible politicians: the current prime minister is a technocrat who was effectively appointed by the EU; though he then managed to gain a reluctant endorsement from the electorate.

The British Conservative and Liberal-Democrat parties are busily undermining any myth of their relevance or their competence. Despite the appalling legacy that the last Labour government left to the country, they probably need one more short stint in power finally to destroy their own credibility. Then - as in Greece - politics will be voided.

Sunday, 19 August 2012

A couple of days ago the USA announced the catastrophic failure of a test fight for a new super-high-speed aircraft. This news came a few days after the successful landing of a superb American vehicle to explore the surface of Mars, and to analyse the materials that it can collect. The combination of triumph and disaster has a cost of billions of dollars; with more massive expenditure to follow as the errors with the plane are corrected and as the success on Mars is followed-up before the Chinese programme for Mars exploration [which is gaining momentum] scoops up and exploits the gains from the American research. The US Congress has always distrusted the 'military-industrial complex' but it recognises that unless their country leads in both pure and applied science it cannot lead the world in anything; and it recognises that only the state can fund great strategically significant developments. Thus the federal budget must fund projects of vast scope, some of which will fail.

Currently healthcare is a matter for hugely damaging dispute throughout American politics, but in terms of state spending it is relatively unimportant: the debate focusses on whether it is appropriate - and constitutional - to legislate for compulsory purchases of health insurance by small firms and by individuals. The budget cost for the immense scheme of Obamacare is modest. The biggest debate about state funding of big science in the US in recent years was over NASA making cuts in spending that were seen as excessive, especially the retirement of the shuttle craft that had conveyed people and supplies to the space station. In China and Russia there is no publication of defence budgets and western estimates of the extent of the related spending on science are conjectural. India and Pakistan, which possess nuclear weapons, throw up massive obfuscation about both the scope of scientific research and the budget for it.

Most obscure of all is the situation in North Korea, whose progress towards developing the capability to deliver the nuclear weapons that it has almost certainly constructed cannot clearly been assessed; but that 'rogue state' is recognised by all the leading members of the United Nations to be an extreme danger for the whole human race.There is little doubt that the North Korean budget for big science and for a ludicrously large mass army overwhelms expenditure on the maintenance of the civil population. And now Israel and its dependency the United States, are determined to prevent Iran from reaching a situation where it too could become a nuclear threat to anyone. The proportion of the Iranian budget that has been spent on the development of weapons and vehicles to convey them is more in line with the Indian than with the North Korean, and hence progress has been slower and the achievement [thus far] is less dangerous than in North Korea: but it has become a crucial test case in global diplomacy and a major threat to peace and to oil supplies globally.

In Britain, where austerity is still a matter of gossip rather than an acute personal experience for the majority, there is annoyance that India is developing its own space programme while Britain still gives that country hundreds of millions of pounds a year in development aid. Progressively over five decades the UK has chosen not to afford its own aerospace or space programme. The political class apparently still consider it intrinsically good to assist rapidly-expanded populations in dozens of countries to secure health for the children who will become the next breeding stock within two decades; during which the projected rate of economic development [even on the most optimistic interpretation of global and local trends] cannot possibly elevate the existing population to a current American standard of living. Britain taxes its people to hand out international aid; then taxes them more, both through the tax system and in the form of raised electricity prices, to spend on constructing windmills and to close viable power stations in order to meet global standards for the control of carbon emissions that both the USA and the emergent economies ignore. What little capital the economy is investing is in largely applied to low technologies that will be delivered at high cost to captive consumers. Britain is not in the space race, which India and China have joined: and which Britain could have led in the 'fifties and'sixties of the last century. Instead the British state poured wealth into welfare and the dissipation of real wealth. The results are at last now beginning to become understood.

Wednesday, 15 August 2012

The newly selected Republican Vice-Presidential candidate for the forthcoming US General Election is quoted as likening Obamacare - the compulsory provision of health insurance for Americans - to the 'socialised medicine' that is common in European countries.

The Opening Ceremony for the recent Olympic Games in London included a hospital scene that may have convinced millions of Chinese and Americans that UK health services are primitive, with nurses in antique costumes putting two or more children in some beds. Within the United Kingdom there is mounting scepticism about the Conservative Party's promise that while they are in government 'the National Health Service is safe with us'. The minister in charge, Andrew Lansley, has shown himself to be a poor communicator and deaf to challenges; while implausible 'efficiency savings' are advanced as the cover for real-terms reductions in the funding that will be made available to many components of the system.

It is notoriously a fact that research is constantly presenting new forms of treatment and new drugs that are often very expensive. The pharmaceutical companies spend massive amounts of money on research, which they can only recoup by selling drugs profitably. Thus health services, whether state funded, insurance funded or charging patients individually, have to pay for the research through the purchase prices they pay for the drugs. It is also notorious that new treatments, including surgical and radiological and pharmaceutical procedures, prolong the lives of patients; so those individuals are likely to live longer as users of maintenance treatments. So if any healthcare system were to provide the best available treatment to all comers, free to the patient at the point of delivery, the costs would increase massively year on year. If the funding for a state system of healthcare is capped, it must follow that some treatments are unavailable to some patients; and some treatments are not available to any patients. This all creates stress points where the decisions are taken as to which treatments shall be available, to what categories of patients. In a country like the UK, where the National Health Service is hugely popular, voters resent restrictions on treatments and would always vote by a huge majority for untrammelled funding of the Service.

Politicians are coming to understand that for at least forty years the state has been raising more and more taxation - and also borrowing massive amounts of money - to maintain the NHS while paying ever more massive sums in benefits and 'tax credits' both to non-employed citizens and in wage subsidies to employees. This massive scheme of socialism has constantly been extended by both Labour and Conservative [and now by Conservative-led] governments; and it is an unavoidable fact that the spending is grossly excessive. There is no practicable means by which voters can be kept on-side with the sham democracy that still totters on by default, if a government drawn from any of the existing parliamentary parties made a realistic attempt to reduce spending on health and benefits and all other government services [not least the defence of the realm and the law and order system]. The bathos of the present coalition government's situation is that they are actually borrowing more money, year on year, while they are claiming 'success' by reducing the rate of increase of borrowing that might occur without the cuts that they are making in public services and in defence.

The conclusion that US conservatives have reached, that any system of state-supervised compulsory healthcare becomes an intolerable burden on taxation [and that the same would apply to any open-ended permanent benefits system for people of working age] is born out by the British experience. Greece, Spain and Portugal are in varying degrees of proximity to bankruptcy because they have had similar systems. In the Greek case welfare costs have been accompanied by massive state spending on excessive public sector salaries, excessive pensions available from early ages, and tax avoidance on an heroic scale has ensured that the state met spectacular budget deficits by borrowing: time has now been called on that country.

To the American conservatives there is no difference in principle between Greece and the United Kingdom. They are not wrong as they hark back to the founding fathers of the republic and the great libertarians who have ensured that the massive scope of the US federal government has been restricted as compared to European countries. One of the many reasons why Americans strongly supported the foundation and the expansion of the European Union was that it presented a good prospect of becoming a federation like the USA, where there would be a balance between federal and state powers; leading to less 'big government' over the long term. The dishonest way in which the eurorats have tried to establish federalism by stealth meant that countries like Greece were able to act irresponsibly and continue to sell government bonds because international bond buyers assumed that Europe would collectively guarantee the debts of all the member countries. German voters are now determined not to be suckered in consequence of the eurolies that their government allowed to become common currency. The majority of Germans [and Finns, and Swedes, and Austrians, and Slovaks] are prepared to let Greece fail economically. Europe will then permanently be changed: jerked back into at least partial reality.

Britain has so far maintained its AAA credit rating: in defiance of the evidence that is all too apparent. The fake prosperity that engulfed and deluded the population for two generations is rapidly coming to an end. Both the safety net of benefits and the beloved National Health service are in danger: as are the equivalent systems in Italy and France, even though their different funding mechanisms partially obscure the parallels. The future is bleak.

Saturday, 11 August 2012

Britain [along with other countries in the EU] has recorded zero economic growth in the current year. This is nothing unusual for a declining economy, especially one that remains subject to a political delusion that has prevailed for more than half a century, and to fundamentally misdirected economics that have been departing from reality for almost a centuryand a half.

Politicians bicker about details and score points off each other, to the increasing frustration and disgust from a populace that has lost confidence in the political class which despises all life outside the Westminster bubble. There is a great deal of talk about rebuilding and refocussing the economy, with no comprehension of the real issues that are involved. Scots are being diverted by the ambitions of a small clique of Scottish Nationalists, which is temporarily attractive to those who find it a sort of antidote to Westminster politics.

Britain still has huge capabilities and resources; but the present government - like all its predecessors since 1956 - still pursues policies which are destructive of wealth and enterprise. The massive 'scheme of socialism' that has almost-completely segregated the receipt of income from the mental and physical effort that is needed to drive and serve an economy is being strengthened rather than challenged in principle. Investment in new enterprise is at an unprecedented low. And governments are 'investing' heavily in windmills, and encouraging electricity generators to burn 'biofuel' in conditions where the inefficency of windmills can no longer be concealed [even before metal fatigue and exhaustion of parts begins to drive costs still higher] and where the improbability that the world can both feed people and burn crops is rapidly becoming a well-evidenced certainty. Windmills also demand a massive subsidy in the form of higher priced power to consumers whose living standards are threatened in many ways.

It is readily possible to turn zero into minus one, or even minus ten per cent, economic growth. the government seems hell-bent on doing this. Of course the politicians will deny this: as the church denied that the earth was a sphere while every king and emperor carried an orb, to symbolise power in the 'round world', as their ancestors had done for centuries. Official 'truth' and the actual truth are segregated by the mass of people, as happened under totalitarian regimes in the last century where the state's official line were heared with winks, nods and inner despair. The British political class does not have the resources either of police or of local party-political supporters to establish thought-control, even in a sense of superficial conformity. Challenges to official idiocy will increase, too quickly for a failed democracy to manage them. There is trouble ahead.....

Thursday, 2 August 2012

Until the so-called 'big bang' in the middle of the nineteen eighties there was a complex of specialist markets: retail and wholesale insurance, retail and business banking, building societies, pension funds, investment management, stock broking, stock jobbing, bond trading, bill trading and several others. Some merchant banks covered a range of these functions; but they all kept clear of retail banking and of all categories of insurance. After the bang most of the non-insurance functions were pretty quickly subsumed into large conglomerates: as a general rule, only the firms that remained under the control of families stuck to a selected range of specialist functions, while the majority leapt into a spectrum of activities that was so broad that the central board of directors could not possibly hope to maintain adequate oversight.

That all came unstuck in 2007-8 and now there is mounting tension between the City of London, weakly 'supported' by the UK government, and the Commission of the European Union who want to impose common methods of regulation and taxation over all finance sectors in all EU member states [and not just the eurozone]. The press is slowly becoming cognisant that insurance will became increasingly expensive if absurd rules of reserving - which may be relevant for banking - are imposed on insurers, More recently feature articles and leaders have been written on the crazy proposal that pension funds should similarly be undermined; shrinking the value of all past and future pension contributions and building up a huge increase in old-age poverty for the future.

It is now urgent and vitally important that the UK government - and, in this, the Labour opposition should declare complete support for the position - declares unconditionally that they will protect the interests of investors, savers [including contributors to pension funds] and those who wish prudently to insure their assets in a rational and affordable system.

It is also crucially important for the survivial of the economy that the international earnings of the financial industries are at least maintained. Assuming that the irrational and irresponsible system of giving traders bonuses proportional to turnover [however risky] rather than on the basis of achieved real profits is replaced by a more rational system of remuneration, it is likely that the income-tax yield from the City will decline hugely; and alternative sources of government revenue will urgently be required if the national deficit is to be diminished. If the historic and entirely rational requirement for reserving by insurers is maintained [and if the daft actuarial preference for bond over equity investment is set aside] that sector can remain the world leader. The Vickers Commission's recommendation that 'retail' banking should be separated [in regulatory terms, if not by separation of ownership - though that would be desirable] from 'wholesale' has been accepted by the government and should be implemented: though fears of the government compromising and thus undermining the separation are mounting. Given that Vickers will, to some limited extent, be implemented, attention should then be focussed on driving genuine wedges between materially useful merchant banking and the huge mass of activity that is appropriately called 'casino banking'.

Before the intrusion of modern Economics in the eighteen-seventies, Political Economists had tought - correctly - that a distinction should be draen between 'productive' and unproductive investment. Productive investment laid down the basis for more production in the future; unproductive investment provided products that were consumed in ways that did not put anything into future economic activity. That distinction should be restored, and those wholesale financial activities that conduce to the facilitation of productive investment should be in one category [let us call it merchant banking] and those that manage purely speculative finance or hedge financial deals unrelated to material economic capital formation [casino finance] should be in another category. Merchant banking should be regulated and taxed as banking is managed by governments all over the world. Casino finance should be registered, regulated and taxed for what it is: betting. Just as appropriate regulation and taxation have made London casinos popular among global high rollers, and the retail British betting industry has been highly successful, so both face-to-face and online finance gambling in futures, derivatives, short-selling [of shares not owned by the sellers] should be legalised and regulated and taxed as a great British business. Before anyone else does it, the City should develop on its great tradition as the magnet for an expanding global trade in bets, which is what most of the turnover was before the crunch. The credit crisis has arisen largely because governments mistakenly adopted and monetised the so-called "banks'" gambling debts; and part of Britain's way out of the mess can be speeded by optimising on the existing City expertise.

In due course, real productive investment must enable industry [including creative industrial sectors] to grow and provide an increasing part of the national product; but for a quick fix the opening of the casino finance business - on an open and honest basis - is the primary feasible option.

Follow by Email

About Me

I have had a very fortunate life, in that I have been able to study the economy and Economics for more than forty years. I taught Economics, the History of Economic Thought and some Economic History at University level for over twenty years; I was CEO of an international professional Institute in financial services for more than a decade; served as head of a large Business School and have been Pro-Vice-Chancellor of a major university; and I have lectured and examined all over the world. My introductory text on insurance was translated into fourteen languages and my writings over a wide range of topics have been available worldwide.

Throughout these years I have quietly challenged the normative assumptions that underlie academic Economics; but for decades I recognised that the hegemony of dogma was so impenetrable that any frontal assault on the self-styled ‘profession’ would be brushed aside by the professoriate that had been appointed in a pyramid of patronage. Now – through the credit crunch and the even more grave sovereign debt crisis – it is very widely recognised that Economics is a failed subject: it fails to provide any adequate analysis of the situation or any new programme for moving the economy forward. The time has come for the world to understand how fundamental the failings of Economics are.

Fortunately we can begin to move forward in understanding by restating principles that were developed before Economics was set out in its modern form in the eighteen-seventies. A sound understanding of the economy begins in the recognition that all decisions and actions in the economy are taken by human individuals, acting on their own or as the agents of corporate persons [companies, registered charities etc] or as servants of international sovereign persons that are known as states [and their governments, local authorities and state agencies].

Persons are not impotent incidents in markets: markets are the creations of persons and any market can be abused or upset by persons with unusual ambition, drive, inspiration or dishonesty. This approach is followed in my simple little book, Personal Political Economy: follow the link.

In this blog I make comments on people and events from the perspective that is set out in the book: and I will not hesitate to repudiate any portion of the book – or any blog – that is invalidated by emergent reality.I thrive on criticism, and welcome it.